Bank of America Buys MBNA - TheStreet

Updated from 9:30 a.m. EDT

The musical chairs among credit card issuers continued Thursday with

Bank of America

(BAC) - Get Report

agreeing to acquire

MBNA

(KRB)

for cash and stock worth $35 billion.

The deal values MBNA, the biggest independent card issuer in the country, at $27.50 a share, a 31% premium to Wednesday's closing price.

In early trading Thursday, shares of MBNA rose $5.44, or 25%, to $26.41, while BofA's stock fell 81 cents, or 1.7%, to $46.10.

The deal comes about a month after

Washington Mutual

(WM) - Get Report

agreed to acquire

Providian

(PVN)

for $6.45 billion. That deal spawned fevered speculation on Wall Street that Delaware-based MBNA could be the next card issuer to be gobbled up by a bank. The deal also comes two weeks after six top MBNA executives, including CEO Bruce Hammonds, survived a helicopter crash in New York City's East River.

Bank of America said the transaction will lift its managed outstanding credit card balances to $143 billion and double its customer accounts to 40 million. The Charlotte-based bank claims the deal will make it the biggest credit card issuer in the U.S., surpassing

Citigroup

(C) - Get Report

and

J.P. Morgan Chase

(JPM) - Get Report

.

MBNA stockholders will receive 0.5009 Bank of America share for each of their shares plus $4.125 a share in cash. The deal is expected to close in the fourth quarter.

Bank of America sees after-tax cost savings of $850 million from the deal starting in 2007. It will take a $1.25 billion charge and expects to eliminate 6,000 jobs. With the charge, the bank estimates the combined company will generate $20 billion in profits, or $4.43 a share in earnings, a nickel lower than current analyst estimates.

The deal is the second big transaction for BofA in recent years. Last year it acquired FleetBoston Financial.

Michael Mayo, the bank analyst with Prudential Equity Group, says the acquisition will make BofA earnings even more dependent on consumer spending than before -- and that could pose a danger down the road.

Meanwhile, the deal will pressure other big banks to find their own card quarry. Earlier this year, the

Federal Reserve

imposed an informal moratorium on Citigroup, which prevents the world's biggest financial services firm from doing a mega-deal. Citigroup, however, hopes to get the moratorium lifted now that it has moved to settle a number of regulatory investigations stemming from its involvement in several big corporate scandals.

Card companies have found it increasingly difficult to survive as stand-alone businesses. Earlier this year,

Capital One

(COF) - Get Report

, a big Virginia card company that spends heavily on advertising, announced a deal to acquire

Hibernia

(HIB)

, a New Orleans-based regional lender, for $5.3 billion.

American Express

(AXP) - Get Report

is the most notable exception to the trend.

David Hendler, an analyst with CreditSights, says the MBNA acquisition likely will have "the boardrooms buzzing'' at American Express and Capital One.

In a conference call, MBNA's Hammonds says the credit card company had several other banking suitors, but noted, "there are not a lot of large companies we could partner with.''

One company for which the transaction could create complications is

Morgan Stanley

(MWD)

. There's been speculation on Wall Street that soon-to-be-CEO John Mack is returning to help orchestrate a sale of all or some of the big Wall Street securities firm. In recent weeks, BofA often has been mentioned as a potential suitor for Morgan Stanley, or for the firm's

Discover

credit card business.

Recently, Morgan Stanley indicated it is rethinking plans to spin off Discover in the wake of Philip Purcell's decision to step down. Some on Wall Street have questioned whether Discover could prosper as a stand-alone business and wondered if the brokerage would be better off trying to find a buyer for the credit card company.

But with BofA buying MBNA, it's highly unlikely it would be able to pull off another big deal, particularly for Discover.

In an interesting twist, one of the investment bankers advising MBNA in the BofA deal was Joseph Perella, a former top Morgan Stanley banker who recently left the firm. Perella was one of several dozen Morgan Stanley bankers and traders who have left the firm the past few months because they were upset with Purcell's management of the firm.

With Mack's return to the firm he once led, there's been speculation that Perella also could rejoin the fold. It's not clear if his work advising MBNA on a deal that could harm Morgan Stanley's own plans for Discover would impede his return.

Along with Perella, MBNA also was advised by UBS. BofA's investment bankers were Keefe Bruyette & Woods.